1. Sales ahead of GST rollout by retailers set to erode margins in June

Sales ahead of GST rollout by retailers set to erode margins in June

A prolonged end of season sale (EOSS) to liquidate existing stock before the onset of GST regime, coupled with waning new stock replenishment eroded margins for retailers in the month of June, according to three sector analysts FE spoke to.

By: | Mumbai | Published: June 30, 2017 5:33 AM
gst, goods and services, gst roll out, gst launch, economy, india economy, gst news, gst latest news, july 1, narendra modi, arun jaitley Sales ahead of GST rollout by retailers set to erode margins in June.

A prolonged end of season sale (EOSS) to liquidate existing stock before the onset of GST regime, coupled with waning new stock replenishment eroded margins for retailers in the month of June, according to three sector analysts FE spoke to. Normally, sales begin in the first week of July but this time to liquidate the inventory to avoid any glitches in transition to GST retailers advanced the sale season and offered massive discounts. “Heavy discounting polished off our bottom line entirely in June,” said Nilesh Gupta, managing partner at Vijay Sales. However, sales improved by 60% over last June, Gupta added. “Volumes will compensate for some of the imminent margin hit,” said Kumar Rajagopalan, CEO at RAI (Retailers Association of India). Not all product categories would have had such a runaway success in terms of sales as Vijay Sales. “The impact is certainly more in the electronics segment, which is categorized by high value goods,” said Rajendra Kalkar, president (west) at Phoenix Mills. Malls, in general, witnessed sales growth in June in tandem with what a typical sale season brings about. Sales in Phoenix, which runs five malls, grew by 40% over last June; in suburban Mumbai, sales in Infiniti Mall is expected to escalate by more than 10%, according to company officials.

Retailers remained divided on the duration of the EOSS. The longer the ongoing sale season, more will be the pressure on margins as companies will continue to sell at less than full price. At the moment, the percentage of fresh stock in stores, which is kept at 25% to 30%, is negligible. Whereas some said as on July 1, stocks will replenish, a more realistic target seems to be a few weeks down the line. “By mid July, we expect 25% of our floors to have new stock,” said Lumba. Gupta said new stock at Vijay Sales will trickle in after 10 to 12 days. Under these circumstance, a lengthier EOSS will adversely hit the bottom line.

“We will not extend the sale season, ending at the end of July,” said Kabir Lumba, managing director at Lifestyle. Echoing his thoughts, Jitendra Mahendra, vice president of marketing for Max Fashion, said there will be no unique events to adjust to the post GST regime. Still, sector experts said, people expect the EOSS season to be what it is historically so ultimately retailers will stretch it for 8 weeks, with a bumper closing on the August 15 weekend. “Such a long period of discounting will put further pressure on margins,” said one sector analyst who did not wish to be named. In a business in which margins are lean, a few percentage points create a deep dent, he added.

Moreover, this year the festive season, which are the main shopping months begin in September and end by mid October, a full month in advance than what is usual. The apprehension some industry watchers are raising are whether there will be a consumption fatigue after such a long discounting period to milch the festive season. Retailers said such doubts are unfounded. “I anticipate a better than usual Diwali season backed by positive sentiment in terms of increments,” said Gupta. Consumers are looking to refresh their wardrobe at all times these days, said Lumba. “In fact, I am confident the margin compression can be made up in the festive season,” Lumba added. Overall, companies and mall development companies remain confident that as long as there is discretionary spending wherewithal, the margin pressure will be well compensated for during the festive season.

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